5 Firms Hold 80% of Derivative Risk
Fascinating stuff:
Members of Congress probing threats to the global financial system — especially the threat of concentration of risk — will have a lot to ponder in newly mandated disclosures highlighted by a Fitch Ratings report issued last week. While derivatives use among U.S. companies is widespread, an “overwhelming majority of the exposure is concentrated among financial institutions,” according to the rating agency’s review of first-quarter financials.
Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies’ exposure to credit derivatives.
Its a short article worth reading in full . . .
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Source:
Five Firms Hold 80% of Derivatives Risk, Fitch Report Finds
First-quarter financials mark the first time comprehensive derivatives disclosure was mandated for all U.S. companies.
David M. Katz
CFO.com | USJuly 24, 2009
http://www.cfo.com/article.cfm/14113089
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July 27th, 2009 at 12:17 pm
QED. As has been said “If they’re too big to fail, they’re too big”
But then, of course we have the Lobbyists and the Congress.
July 27th, 2009 at 2:35 pm
This are the same firms that, along with the FedRes, use “Systemic Risk” Threats to hold the USTreas, and the USTaxpayer, Hostage.
They are, simply, the Terrorists that Are the ‘Existential Threat’ to the Country.
With that, They should be off-shored, so they can play their Games w/ themselves.
Their Economic Utility is less than Zero. No Hedge needed.
~~
past that,
BR, I-Man,
see: http://www.goldenwitch.com/
better rods are hard to come by..
July 27th, 2009 at 3:45 pm
Funny thing is, as an individual gambler, my brokerage firm won’t let me trade derivatives unless I have enough money in my account to cover my maximum loss. What constantly annoys me is that this simple rule doesn’t apply to multi-billion-dollar corporations.
July 27th, 2009 at 7:10 pm
Ah, yes one of Buffett’s favorite topics. He has been talking about the systematic risk and linkage of derivatives for years. That man is smart, every regulator (Greenspan especially) should be required to read Buffett’s annual reports and then report to Congress on what it means. Buffett covered most of the ills long before they became lethal, but Greenspan et al ignored the man. In so many areas Buffett covered the things that blew up over the last few years, including derivatives, excessive executive compensation, debt etc.
From the 2002 Berkshire Hathaway report;
“Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal with them and the economic system.”
“Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. Derivatives also create a daisy-chain risk that is akin to risk run by insurers or reinsurers that lay off much of their business with others. In banking , the recognition of a “linkage” problem was on of the reasons for the formation of the Federal Reserve System. Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously strong banks, causing them to fail in turn. When a “chain reaction” threat exists within an industry, it pays to minimize links of any kind. Tha’s how we conduct our reinsurance business, and it’s one reason we are exiting derivatives. In our view, however derivatives are financial weapons of mass destruction, carrying dangers that, while now latent are potentially lethal.”
But Greenspan was an Ayn Rand devotee, he ignored the whole mess, did everything IMHO to hamstring regulators and in the end the entire system
blew up. The poor tax payers and future generations are left to pick up the pieces and pay the bills for incompetence and greed.
July 27th, 2009 at 7:38 pm
So, we the taxpayer are covering their derivative risk. This game is soooooo rigged!!
July 27th, 2009 at 10:09 pm
I wish I had the spare time to research the potential for an antitrust suit against this group. “TBTF” to me means “de facto oligopoly”. They’re so big that *they* call the shots within our government.
Maybe we “bailed them out”. But, that doesn’t mean we shouldn’t sue the shit out of them.
How ’bout some of you “deferred” first year associates who were headed to big securities litigation firms (that can front the money for a case this big)? Here’s your & your firm’s opportunity to make the history books.
C’mon. Make a case.
July 27th, 2009 at 10:14 pm
This past year should be a “teachable moment” to people who’ve ever bashed populist Latin American leaders for abrogating some contracts entered into by their crony predecessors.
Imagine if a Ron Paul or Ralph Nader came to power. Wouldn’t either one of them direct the Attorney General to find all sorts of legal theories to discredit the bailout of Fannie/Freddie and in turn the Fannie/Freddie bondholders (who subsequently liquidated their positions waaaay above market prices)?
July 28th, 2009 at 9:08 am
and, I’ll say, this, again, CFO magazine / CFO.com is well-done/ a good outlet..
July 28th, 2009 at 6:53 pm
Well look on the bright side. The CEO of LEHMAN did ok. When he was testifying before Congress, he said he made a cool $600,000,000 over the past six years, the six years just before LEHMAN took the big one. See the system isn’t so bad for everyone, now is it????
After all if we expect trickle down to work, you have to compensate the top dogs well enough that they will share with all the rest of us poor tax payers.
Mark, I agree CFO.com is a worth reading.